Monday, Feb 11 2013
• 12:25 p.m. (ET)

Rethinking The Bottom Line: Benefit Corporations

A new business model is taking off in our region and around the country. Companies in Maryland, Virginia and soon the District can register as a “benefit corporation,” which allows them to pursue both a social mission and a profit. We look at this trend and what it means for companies in our region and around the country.

Guests

Gary Skulnik
Co-founder and President, Clean Currents

Erik Trojian
Director of Policy, B Lab

Melissa Carrier
Assistant Dean, Global Programs and Social Value Creation, Robert H. Smith School of Business, University of Maryland

Jamin Raskin
Member, Maryland State Senate (D- Dist. 20 Montgomery County); and Professor of Law, American University's Washington College of Law

Transcript

12:28:52

MR. KOJO NNAMDIA new business model is emerging in our region and around the country. Companies in Maryland, Virginia and, soon, the District as well can register as benefit corporations, meaning they're charged with pursuing a social mission along with a profit. It's good news for those who want to promote eco-friendly products or advance social calls while still making a buck.

12:29:12

MR. KOJO NNAMDIAnd for those concerned that too many businesses claim to be socially or environmentally responsible, there's accountability and transparency built into the model. Maryland was a pioneer, the first in the nation to grant benefit corporations legal status back in 2010. Joining us to discuss this trend here and around the country, first by phone from New York City is Erik Trojian. He is the director of policy at B Lab. Erik Trojian, thank you for joining us.

12:29:40

MR. ERIK TROJIANThank you for having me.

12:29:41

NNAMDIErik, what exactly is a benefit corporation?

12:29:44

TROJIANSo it's very simple. There's -- current corporations have one fiduciary duty and one responsibility and that's to maximize profit, which is perfectly fine. But unfortunately, it leaves a good section of the economy out of the legal realm of what it can do. And that's the whole social impact investment community. And so it allows companies to not only seek a profit but also allow them to consider society in the environment which they currently don't have the right to do. So it expands what they can do.

12:30:15

NNAMDIThere is also a legal status known as a certified B corp. What does that designation mean?

12:30:20

TROJIANSure. So actually, the legal statuses, the benefits...

12:30:23

NNAMDIIt's the benefit corporation, I'm sorry. It's...

12:30:24

TROJIANYou're right. And the certification...

12:30:25

NNAMDIThe B corp status is what -- go ahead.

12:30:28

TROJIANYeah. The certification is the certified B corporation which is a non-profit certification that B Lab, the non-profit I am with, bestows on a company if they earn enough points. And, you know, our mission as B Lab is to use the power of business to solve social and environmental problems. So we want to identify those companies that are thinking in that space so that investors, consumers, et cetera, can notify and be notified that -- what they're doing.

12:30:55

NNAMDIWhat are you looking for when you decide to or not to give a company B corp status?

12:31:00

TROJIANSo what they -- the first thing that they must do is they take a test, which is available on our website. And that's another thing that our non-profit -- it's kind of our public service -- is that companies can take this test. It's called our B impact assessment. And they can see how they stack up, you know, how -- what are they doing to consider (word?) environment?

12:31:20

TROJIANWhat issues are they missing? And it's a tool that any company can use to evaluate that. If they happen to earn enough points, which is 80 out of 200, and then we verify their documents, then we would enable them to become certified.

12:31:33

NNAMDIPart of your job involves advising states on benefit corporations. Currently, 12 states, including Maryland and Virginia, do have them. How many more are considering it?

12:31:42

TROJIANRight. So there's about 15 more this year that are considering it, and any minute now, we should hear about D.C. The mayor has, today, to sign the bill. We're hearing good things that he will sign it into law, which will then, of course, it'll go over to Congress for 30 days. So D.C., hopefully today, will be the 13th jurisdiction to allow it, and then 14 more, 15 more coming up this year.

12:32:07

NNAMDIAnd you seem to be saying that this kind of legislation that D.C. is expected to sign, and that Maryland, Virginia and others have signed, seems to be one of the very few either non-partisan or bipartisan issues these days.

12:32:19

TROJIANAbsolutely, absolutely. In fact, on all the four votes that have enacted this into law, we have a 93 percent approval ratings. So we're seeing great bipartisan support.

12:32:28

NNAMDII wonder who's the 7 percent.

12:32:30

TROJIANYeah.

12:32:31

TROJIANRight? Exactly. But no. Every -- in every state, it's been bipartisan. You know, we get -- and I think one of the most amazing things is people that you would think would be the sponsors are not necessarily sponsors because it's so far-reaching that so many variable people want to be the sponsor. We have extreme conservatives in some state that want this, extreme liberals and other states, because the idea is it's a free market approach.

12:32:57

TROJIANLet's just un-handcuff business and allow them the ability to think of things outside of the box and work with government to solve these problems. And that's really what we're doing here is starting the foundation that gives them the ability to that.

12:33:10

NNAMDILet's take a brief peak into the future. You speak at a lot of business schools about this. What are you seeing there?

12:33:16

TROJIANActually, that's just a good, nice observation is that a lot MBA students coming out of these schools are really starting to think this way. You know, it's a different generation. People think differently than they previously did. And I think, without this law, we're kind of stymieing their ability to grow and to be entrepreneurial. And by allowing this, what we're doing is opening the box for them and providing, you know, these young entrepreneurs a lot of opportunity. And there's a lot of desire for this, and, in fact, it's being taught in many schools as well.

12:33:49

NNAMDIErik Trojian is the director of policy at B Lab. Erik, thank you so much for joining us.

12:33:54

TROJIANThank you very much.

12:33:55

NNAMDIJoining us in studio is Jamie Raskin. He's a member of the Maryland State Senate. He's a Democrat representing Montgomery County. He's also a professor of law at American University's Washington College of Law. Jamie, always a pleasure.

12:34:07

SEN. JAMIN RASKINMy pleasure.

12:34:08

NNAMDIAlso with us in studio is Melissa Carrier, assistant dean for global programs and social value creation at the Robert H. Smith School of Business at the University of Maryland. Melissa Carrier, thank you for joining us.

12:34:20

MS. MELISSA CARRIERThank you.

12:34:21

NNAMDIAnd Gary Skulnik is co-founder and president of Clean Currents, that's a green energy company based in Silver Sprint, Md. Clean Currents is also a benefit corporation. Gary, thank you for joining us.

12:34:32

MR. GARY SKULNIKThank you, Kojo.

12:34:33

NNAMDIYou too can join this conversation. Call us at 800-433-8850. What do you think of the idea of a business charged with doing good as well as earning a profit? Would you prefer to do business with such a company because it's got a social or environmental mission? 800-433-8850. You can also send us a tweet, @kojoshow. Jamie and Melissa, it's been about a year and a half since benefit corporations became legal, a legal designation in Maryland. We talked about it back then. How is it going now?

12:35:04

RASKINWell, we -- when I introduced this, Kojo, it was with the idea that there are a ton of local businesses especially a lot green business that want to do well in commerce, do good in society and do justice in the workplace. And there's been tremendous excitement, I think, in the country about the idea. A dozen states from Virginia to Vermont to New York to California to Minnesota have adopted the benefit corporation model. So the idea is catching on big time, and I think there's a lot of excitement in the business community. I'm eager to, you know, hear what Melissa's got to say about what's happening.

12:35:46

RASKINThey just did a very interesting report about it. And the problem, of course, is that it's tough for businesses to get capitalized. Generally, there's not a lot of capital for new businesses out there, and I think that's the problem some of them are seeing. But the benefit corporation status and tag, I think, has inspired a lot of potential investors and consumers and employees. And so there's starting to be a buzz around it, but we are still very much in the infancy of this movement.

12:36:14

NNAMDIMelissa, Jamie mentioned you've been looking into the progress of benefit corporations. What are some of the challenges at this stage?

12:36:20

CARRIERYes. There's quite a few, and if you keep in mind, it took almost 50 years for the general and corporation status to make its way through state constitutions in the 1800s. We are at the very earliest stages of this new type of legal entity. And so some of the challenges are around, one, an information gap, really having the general public understand what it -- what benefit corporations are, what they do for their communities as well as engaging investors in the conversation and getting employees and managers to think about this option.

12:36:50

CARRIERThere certainly is some lack of coordination happening right now in the state to be able to really become a method by which many companies incorporate. We need to have lawyers and accountants and consultancies that very much understand what this means and how to help their companies become incorporated and then really making sure that we have an alignment of incentives.

12:37:11

CARRIERThat the reason the state felt it was important to create this incorporation status was to have companies that were also not just creating profit but were actually trying to create material positive impact in society. And we want to make sure that the companies that are participating in this legal structure are having that kind of impact.

12:37:29

NNAMDIGary, your company, Clean Currents, signed on the first day the designation became available. Can you tell us a little bit about your company and why you want it to become a benefit corporation?

12:37:40

SKULNIKSure. Well, we were founded really for the exact reasons that benefit corps and B corps exist. We were founded to make a difference as a business in the fight against climate change and for the cleaner environment by helping people to switch to clean energy at their homes and business throughout Maryland and the Mid-Atlantic. So when we heard about this legislation, it was a no-brainer for us. It fits our model to a T.

12:38:07

SKULNIKWe want to be the kind of business that is creating positive social change while also making a profit. And we also find that a lot of our competitors out there and a lot of other businesses conduct what you might call green washing. Everybody at, you know, this day and age kind of talks about being green, even Exxon Mobile will claim that they are green to a degree. And we were looking for a way to really verify that the company behind the message walks the walk. And being a benefit LLC and being a B corp. is a way to verify and be very transparent about what we're actually doing.

12:38:47

NNAMDIGlad you brought that up because, Jamie and Melissa, many companies claim to be green and social conscious though many are doing more than what Gary called green washing that is providing the appearance of being green. There's an understandable skepticism on the part of many consumers. What do you think benefit corporations can do to address that? First you, Melissa.

12:39:11

CARRIERWell, what's so interesting about this legal forum is the real innovation is that this power is coming from the state which is really distinct from the many certification programs that exist for companies. If they want to green their products or green their business processes, there's hundreds of certification models out there.

12:39:30

CARRIERBut what has been really unique about the benefit corporation as a legal form is the fact that states are now granting companies the power effectively into perpetuity to pursue both the social mission and an impact, and that in itself is really unique and different and what makes this movement nationally so exciting.

12:39:48

NNAMDIJamie.

12:39:49

RASKINWell, the benefit companies commit to abide by the highest value workplace criteria, social criteria and environmental practices, and then they file an annual report where they're not just enumerating what the profits are and expenses are, not just the financial bottom line, but also the social bottom line, the workplace bottom line, the environmental bottom line. So they're reporting to all of the stakeholders in the corporation.

12:40:16

RASKINAnd so, in addition to that, they need to get one of these third-party validators, like B Lab, to say that they are complying with their criteria. So, you know, there are some pretty high thresholds, and the businesses have to be serious about it. And we want them to be serious about it because we think there's a huge benefit in being able to designate yourself this way. I've got two constituents who are in my Senate district who are kind of famous benefit companies now. One of them is the Big Bad Woof.

12:40:45

NNAMDIMm hmm.

12:40:46

RASKINAnd they sell animal supply products. And on the weekend, they do animal adoptions and other kinds of animal advocacy. And then there's Blessed Coffee. And my friend Tebabu is importing coffee from his native Ethiopia, and he sells it in Silver Spring and Takoma Park. He distributes it, and then a lot of the profits are just channeled right back into the community and to educational work and other kinds of community organizations.

12:41:10

RASKINSo the benefit companies are basically making a statement that they are -- they're not like the big multinational titans that are moving jobs overseas and in Wall Street and involved in predatory activity. They're rooted in the community, and Melissa's right that we're giving them a legal status and a way to go. And that doesn't mean it's totally easy. Again, there's still the problem of finding the capital out there, but I think, more and more, the benefit companies are finding that there are certainly potential employees who want to get involved, consumers and investors.

12:41:44

NNAMDIGot to take a short break. When we come back, we will continue this conversation on B corps and benefit corporations as a legal status. But you could still join it by calling 800-433-8850. Are you concerned that too many companies claim to be green or socially responsible without actually changing their business practices? 800-433-8850 or send email to kojo@wamu.org. I'm Kojo Nnamdi.

12:43:51

NNAMDIWelcome back to our conversation on benefit corporations that have a social mission to do good or to benefit communities. We're talking with Melissa Carrier, assistant dean for global programs and social value creation at the Robert H. Smith School of Business at the University of Maryland. Jamie Raskin is a member of the Maryland State Senate. He's a Democrat representing Montgomery County.

12:44:14

NNAMDIHe's also a professor of law at American University's Washington College of Law. And Gary Skulnik is co-founder and president of Clean Currents, a green energy company based in Silver Spring, Md. Clean Currents is a benefit corporation. Gary, has being a benefit corporation been a selling point for your company?

12:44:32

SKULNIKIt's been, I think with the consumers who are aware of it, it has definitely been a selling point, but, frankly, it is something we need to do a little better job educating the market about. I think consumers have a lot of cynicism about corporations, and we're trying to explain that not all corporations are focused on only the bottom line. Some of us have triple bottom line focuses and are benefit corps, and we're trying to educate them about that and make informed choices.

12:45:02

NNAMDIAwareness is still low. The average person doesn't know what a benefit corporation is. What do you think needs to be done to promote this, Melissa Carrier?

12:45:12

CARRIERWell, when we did our survey this particular fall semester, we found that there's 39 current benefit corporations in the state of Maryland. And what was clear is, by and large, many of them are using this corporate form to really be recognized for their principles.

12:45:27

CARRIERAnd so it's clear that there are some things we can do at the state and local levels to incorporate the opportunity to become a benefit corporation in all of our economic development initiatives, to work with our small business development centers, to work with the centers who are focused on building entrepreneurs and building new companies in the state to encourage them to consider this type of legal entity as they're forming, and to do a public relations campaign, to be proud of the fact that Maryland was the first state to pass this law and to take advantage of that first mover and really get the message out broadly across the state and have Marylanders be very proud of that fact.

12:46:04

NNAMDIA couple of other issues. Jamie Raskin mentioned a couple of small companies in Takoma Park, Md., but you're also looking at companies like Patagonia, which is a national company which is taking this on. Is that likely to set a trend, start?

12:46:19

CARRIERThat's right. Well, really, the benefit corporation legislation that's sweeping the country is a very subversive effort, frankly, to change the nature of the corporation, the purpose of the corporation. When a company registers as a legal benefit corporation, they are actually creating a fiduciary duty of their directors to both create a financial return for shareholders, but to also create some type of environmental or social impact.

12:46:44

CARRIERAnd this is fundamentally different than the traditional purpose of corporations that we've come to know in the last 150 years of corporate law. And so it is a very interesting movement when you see large private companies like Patagonia choose to incorporate under this model, and the question becomes -- long term in the next 10 to 15 years -- will we start to see these private companies go public in the markets with this legal status?

12:47:07

CARRIERWill this legal structure hold up in the court systems that have traditionally really supported fiduciary responsibility to shareholders as a priority? So there's a lot of unanswered questions, but it's a very exciting movement. And the people that are involved in it, from both the legislative side to the entrepreneurs to the business centers, are very excited about what's happening in the corporate world today.

12:47:28

NNAMDIJamie Raskin, a couple of questions for you. One of them is given that you are always interested in a certain degree of transparency, benefit corporations are expected to demonstrate a lot more transparency than corporations normally do. And I'm just wondering if that means that no matter how widespread it becomes, it's not going to be for all corporations.

12:47:51

RASKINWell, that's right. I think this goes to the question of greenwashing. I mean, nothing is more popular today than for businesses to slap green on their, you know, a fresh coat of green paint on their buildings and say, we're a green company. And then that's what's causing so much skepticism in the public about it. And so this really puts them to the test. This says that you're willing to commit to line up your values with your business practices and to be committed to the environmental bottom line and to the highest workplace and social criteria in addition to making money.

12:48:30

RASKINAnd I think that what's going to happen is that as we begin to hit a critical mass of businesses, and some of the bigger ones start to come in and the medium-sized ones and then lots of the smaller ones that have started it, we will get a kind of chamber of progress within the Chamber of Commerce. There will be businesses saying, hey, we have to look at what is the social impact of business generally.

12:48:56

RASKINAnd, you know, in addition to accepting law and regulation, can we actually have a positive effect on the direction of society? And that's why I'm so excited by it because there are lots of people who want to go in a business, and they want to make money, and that's a great thing, but they want to do good at the same time.

12:49:12

12:49:19

CARRIEROK. I'll take that one.

12:49:20

NNAMDIOK.

12:49:21

CARRIERLEED certification is focused very much on building standards. So when you're creating a new building or retrofitting existing building, you can be certified for certain kinds of environmental changes that you might make to your building. The benefit certification is more broad. So it includes environmental measurements, but it also includes social measurements, things like transparency, governance, structures, employee, workplace conditions and so on. And so it's a more holistic look at the corporation.

12:49:53

RASKINIt's for the business, not the building.

12:49:54

CARRIERThat's exactly right.

12:49:56

NNAMDIIndeed, Gary, one important aspect of benefit corporation that they're currently discussing is the sole issue of assessment which could help address the cynicism about companies doing good. How is your company's performance reviewed, and how does it help to guide you?

12:50:11

SKULNIKWell, we take an annual assessment through B Lab. We -- I actually happened to have a copy, I'm looking at here, our recent assessment. We did very well overall. I'm very proud of our environmental impact. We scored pretty much the highest you can score. You know, I think what it has done for us is given us a framework as company executives on how to improve our business 'cause frankly, I don't know everything. And my business partner Charles, we don't know everything about best practices in every area.

12:50:47

SKULNIKSo this gives us a guide posts to say, well, what are the best practices for workers' compensation, for workers' ownership? What are best practices for community diversity and local involvement? And we involve all of our employees and people have an opportunity to hold us accountable as managers and to provide ideas for what Clean Currents can do better. We are looking to improve our score, so in areas such as workers' ownership of the company, for example, things of that sort.

12:51:23

SKULNIKAs a small business, some of these things are difficult to get off the ground, but we are committed to improving our score in every area. And I think that really helps with the morale of the company. We've created a very special culture at Clean Currents. We've got an amazing group of people who work there, and a lot of it is exactly because we are a benefit corp.

12:51:42

NNAMDIYou also scored on things like worker diversity, is that correct, which is...

12:51:45

SKULNIKCorrect.

12:51:45

NNAMDI...one of the things, Jamie, I was thinking a lot of companies may not want people looking too closely at and, therefore, would find it difficult. But don your headphones, please, because Tina in Mount Rainier has a question, a comment. Tina, you're on the air. Go ahead, please.

12:51:58

TINAHi, everybody. Yeah. I'll make this quick. Recently, I was rather incensed by some comments made by a CEO -- by the CEO of Whole Foods. I went on my way to try and find a place to buy foods where I felt that people really did walk the walk when -- instead of just talking the talk. And where we go as consumers to find out if companies that we patronize do take care of their workers, do give them proper health care, do treat them correctly so that we know that we're not supporting companies that really are detrimental to the society as a whole?

12:52:30

NNAMDIMelissa Carrier.

12:52:31

CARRIERWell, there are number of places you can go to look. Certainly companies that have gone through certification, whether it's B Labs or Green America, all of their data is publicly available. That's one of the benefits of going to the certification process is the transparency. So you can go to, for example, B Labs website and look and read all of the reports that the companies have completed, same with Green America.

12:52:52

CARRIERYou can look at initiatives like the Global Reporting Initiative that is -- as a global effort to increase corporate reporting on their performance and human rights in environmental and so on. And all of that data is publicly available.

12:53:05

CARRIERAnd you can certainly also just talk in your community and find out which are the legitimate businesses that people are participating in and to figure out where, you know, ask these questions, ask the questions to the business owners, ask your friends. There's a lot of social media buzz around these areas and things like that that you can use to -- also find out information.

12:53:25

NNAMDITina, thank you for your call. Jamie. Don't hang up yet, Tina.

12:53:27

RASKINWell, I was just going to add to this, Kojo, that after the Supreme Court's decision in the Citizens United case, which basically empowers corporations to spend freely in politics, consumers I think are in precisely the situation of wanting to know much more about what their company is doing and what positions they are taking in political campaigns and on public issues.

12:53:49

RASKINAnd I know that the CEO of Whole Foods, John Mackey, has taken very strong positions in politics that are really at odds with the feelings of a lot of the customers of Whole Foods. So I think, you know, she raises an excellent point.

12:53:59

NNAMDIAnd frankly, Melissa, there are lot of people who would expect a company like Whole Foods or Stonyfields would welcome this, but not necessarily so?

12:54:09

CARRIERRight. It's -- it is, you know, it's really challenging, a company like Whole Foods, that has done frankly a lot of good, if you will, for consumers. It's still this issue of a founder with a passion and set of beliefs that sometimes takes over the business itself. And I think, you know, that's not the last time we're going to have that kind of issue.

12:54:31

CARRIERAnd it's the companies like Ben & Jerry's that have also struggled with these kinds of things. They've grown and become more prominent and had more influence, and people are paying more attention to not just what the business itself is doing but what its managers are doing and saying in a public sphere. So it's -- we're going to have much more of it.

12:54:47

NNAMDIThank you very much for your call. Jamie Raskin, are you considering any legislation that might promote these companies, tax incentives perhaps?

12:54:53

RASKINWell, but I want to let things develop for a while. First, I mean, I'm totally open to that, but we don't want people getting into it primarily for some kind of tax incentive or tax benefit. We want the companies that really want to declare that they're doing business this way. But, you know, I think that over time, the benefit corporations are going to start to play a really important social purpose. And it's true what Melissa says that it's kind of a revolution in terms of our understanding of the corporation today.

12:55:23

RASKINBut it's actually quite similar to the way corporations were seen when the country first started because they were chartered by the states and kept on a very short leash in order to do particular public purposes. And I don't think we're going back to that, but I think we're now somewhere in between the idea of the corporation serving a public purpose and the idea that we're emerging from, which is a corporation can just do whatever it wants and has no responsibility to the public.

12:55:45

NNAMDIGary, what is the legal status of being a benefit corporation mean for your company?

12:55:50

SKULNIKWell, it means that as we seek to grow and take on additional capital, we have a responsibility to a broader group of shareholders, not just the people who own the stock -- that's extremely important -- but also to the community, the environment and our employees as well.

12:56:07

NNAMDIWhich raises a technical question that we got in the form of an email, "Are benefit corporations eligible to receive funding from philanthropic foundations which can normally fund only non-profit organizations?" Melissa.

12:56:21

CARRIERNo, they're not. They are still for-profit companies, incorporated as LLCs or corporations, so they cannot receive any philanthropic dollars.

12:56:29

NNAMDIBut, Jamie, Melissa made reference to this early. A number of companies are founded on particular values like Ben & Jerry's. But as they grow, they struggled to maintain that particularly when they're sold. Can you talk about that, a local example being, I guess, Honest Tea in Bethesda?

12:56:45

RASKINWell, I mean, Ben & Jerry's is a good example because they got big. And then I think when it came to the point of a takeover, they were legally required by corporate principles to take the high bid rather than the high road. So, you know, in order to avoid shareholder derivative litigation, you got to take the highest price for the share even if you think the acquiring company is...

12:57:09

NNAMDIWhere they a benefit corporation legally? Would that have a (unintelligible) ?

12:57:12

RASKINYes. Had they been a benefit corporation, they could have said, you know, thanks, but no thanks, guys. We're going to stick with the values we got and keep going, or there's another acquirer who's offering a little bit less but we think is going to live up to the real values of the company.

12:57:25

NNAMDIMelissa, do you see a larger movement towards this conscious capitalism as it is sometimes called?

12:57:30

CARRIERAbsolutely. I think we see it, of course, in University of Maryland with our students wanting to work for these companies. And we see more entrepreneurs wanting to create these kinds of businesses. We see technology giving us the opportunity to create social change. Hundred percent agree. It's moving in that direction.

12:57:44

NNAMDIMelissa Carrier, she is the assistant dean for Global Programs and Social Value Creation at the Robert H. Smith School of Business at the University of Maryland. Melissa Carrier, thank you for joining us.

12:57:53

CARRIERThank you.

12:57:54

NNAMDIGary Skulnik is co-founder and president of Clean Currents. That's a green energy company based in Silver Spring, Md. Clean Currents is also a benefit corporation. Gary, thank you for joining us.

12:58:03

SKULNIKThank you.

12:58:04

NNAMDIAnd Jamie Raskin is a member of the Maryland State Senate. He's a Democrat representing Montgomery County. He's also professor of law at American University's Washington College of Law. Jamie, thank you for joining us.

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